Investment Firms Slapped For Peddling Risky 'Inverse' ETFs

Do you really understand what your broker is selling to you? Or for that matter, does the broker himself understand it? The Financial Industry Regulatory Authority is socking four major investment firms with fines and restitution orders worth $9.1 million for peddling volatile, unsuitable financial products to retail customers. FINRA said the companies - Citigroup Global Markets, Inc.; Morgan Stanley & Co. LLC; UBS Financial Services; and Wells Fargo Advisors LLC - sold wild-card versions of exchange-traded funds to investors in 2008 and 2009 without the companies' own brokers fully understanding the risks. At issue were the sales of ETFs based on debt, and “inverse” funds, which hold short positions in volatile derivatives and try to deliver the opposite of a given index or benchmark. A FINRA official said investment companies must “conduct reasonable due diligence and ensure that their representatives have an understanding” of what they are passing off to investors. However, in settling, the firms were not required to admit or deny the charges, and there was no mention of whether individual executives at the companies were held responsible.

 




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